You need to active Javascript on your
BusinessDay
Nigeria's leading finance and market intelligence news report.

Buying the right quantity

If it were possible to store as much of an item as one would ever need, this will be the way to go! I absolutely hate to walk into a store and be informed that an item I need is out of stock, especially when it’s something I have gotten used to and grown to love.

This is the challenge from a customer perspective. Now imagine how much more complex it is for companies to properly manage multiple items of inventory. Any item maintained or held by a business to enable it to meet demand is defined as inventory. The major types are:

Raw materials (items used in a manufacturing process – sugar for soft drinks),
Packing and Packaging Materials (used for packing and storage – bubble wraps, pallets, boxes),
Work in Progress – WIP (unfinished items in a production process that need to be further used in manufacturing e.g., parts of a product that need to be assembled),
Finished Goods (completed items that are ready for sale),
Maintenance, Repair, and Operations – MRO (items used up in the production process e.g., bearings, bolts, nuts, and consumables such as tools lubricating oil, and stationery),
Trading Inventory – used by the retail industry as they refer to items held for sales to customers.

Inventory for companies providing services – all kinds of inventory items are required here with varying degrees of usage.

An understanding of Inventory and its management is critical to the Procurement function because we are tasked to source these items in the right quantity. Too much inventory is a waste as it could lead to restricted cashflows, high storage costs, spoilage, and obsolescence: too little means we risk an out-of-stock situation leading to production downtime, sales/revenue loss, and irrecoverable reputational damage.

Read also: Why you must have comprehensive procurement policy

If we have some accountability for buying items, we must therefore have visibility into the inventory management data and processes.

Inventory management policies are determined by several factors; here in Nigeria where over 50% of inventory is usually imported, we have the additional challenge of dealing with unpredictable delivery lead times, customs clearing delays, and inland road transportation nightmares. Access to real-time inventory data and sharing the same collaboratively with strategic suppliers is the only way to meet this objective efficiently. If your suppliers don’t know what your inventory position and plans are, how would they in turn reserve the capacity to meet your demand? Your company is not the only customer they have!

Whether your company has a separate inventory planning/management team or not, Procurement should see the data, understand the process, participate in the decisions, and give insights to the supplier side of the equation. In an integrated Supply Chain, this is the norm; I merely propose these ideas to help with the peculiar situation we are in. Encourage your business leaders to use inventory management software (there are a good number of cost-effective solutions available), ensure the data is updated regularly, and refer to the reports before embarking on sourcing activities. If the user departments put you under pressure to purchase items, request for inventory data and usage as a pre-requisite for attending to purchase requests: Document these as part of your policy and you will find that there will be some degree of sanity.

You do not want to be the hole through which your company is losing money, do you?

Harold Nwariaku FCIPS
Lead Consultant, Harold & Co Procurement/Supply Chain Consulting, and Branch Chair, CIPS Nigeria
Website: www.haroldandco.com: Email: harold@haroldandco.com

Get real time updates directly on you device, subscribe now.